US dollar on course for longest losing streak in 14 years

August has been yet another bearish month for the greenback, leaving the American currency poised to post its sixth consecutive monthly fall – its longest losing streak in more than 14 years.

The dollar index, a measure of the buck against six developed market counterparts, has dropped 1.3 per cent in August, and has shed 9.4 per cent since the end of February, Reuters data show.

Coming into this year, many investment houses had incorrectly forecast dollar strength, given the Trump administration’s promise to ignite stronger growth and a Federal Reserve that appeared to be primed to more rapidly increase the pace of policy tightening.

Donald Trump has, however, become lodged in a series of scandals that have severely diminished hopes that the former businessman will be able to strike a deal with lawmakers to reform America’s tax code or launch a large infrastructure spending programme.

Meanwhile, despite robust gains in the jobs market, inflation has continually underwhelmed expectations, something that has called into question whether the Fed will raise interest rates for a third time this year. The as yet unknown impact of Hurricane Harvey on the economy has further muddied the outlook.

At the same time, other global economies, particularly the eurozone, have perked up. The bloc’s economy grew at the quickest clip in five years in the second quarter, lifting expectations that the European Central Bank will unveil in coming months plans to begin unwinding its bond buying programme.

“Economic politics, geopolitics, social politics, not to mention natural disaster; none of them are dollar-friendly, and nor is the laissez-faire Fed,” said Kit Juckes, a strategist at Société Générale. He pointed to the US 10-year Treasury yield, which on Tuesday hit a fresh 2017 low, as an indication of investors’ glum sentiment on the buck.

Out of the major developed market currencies, the euro, which has by far the heaviest weight in the dollar index, has sparkled. It has soared almost 15 per cent year-to-date, and on Tuesday crossed $1.20 for the first time since early 2015. Sterling has risen 5 per cent this year, while the Japanese yen is up 7.8 per cent.

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